Funding industry's overall direction of travel is clear.
The year 2016 was an eventful one for litigation funding. Its final few months saw a run of big judgments concerning the industry – Excalibur, Essar and Wall for example, each of which have significant ramifications for funding; some good, some bad.
But while the courts may have created some twists and turns on the funding road – on issues such as indemnity costs, recoverability of funding fees, or the obligation on claimants to reveal the identity of funders – when you zoom out to the aerial view, the industry’s overall direction of travel is clear. It is ploughing ahead.
The amount of cash flowing into the sector is impressive.
In November, Calunius investors tipped a further £100m into the funders’ warchest; double the amount it achieved in its previous fundraising, in 2014. Funding giant Burford, headquartered in the US and listed on AIM, raised itself £100m in easy cash with a bonds issue in April; while funder Vannin announced that it had raised further funds through a secured debt facility in June.
Last month also saw a massive market development across the pond, as the Burford beast opened its jaws and swallowed its closest rival, the well-financed Gerchen Keller Capital, for $160m – stunning the market. The audacious deal shows the strength of Burford’s ambition and its lust for scale. The bigger a funder is, the more diverse its portfolio and operations can be – which is important when you are dealing in risk.
Why are funders finding it so easy to attract investors? There are a number of factors which combine to make conditions very favourable for the funding industry at the moment.
Interest rates are low, which means that those with cash to invest need to find more imaginative ways of making their money work for them. Litigation funding is inherently risky, but the returns can be alluringly high.
Litigation funding also has the advantage of being ‘uncorrelated’ risk – unconnected to the wider economy. So it is a good way of balancing an investment portfolio.
What’s more, the industry – as we recently saw in Excalibur – is receiving the stamp of approval from the judges and governments in a growing number of jurisdictions.
But while funders may be finding it easy to fill that war chest, the tricky part is finding the right cases to spend it on. This may have been why Gerchen Keller, which had attracted a huge amount of capital very quickly, chose to enter into the deal with Burford, making it easier to find cases to invest in to deploy that capital.
So what lies in store for 2017? No doubt we will see more cash flowing into the funding sector, and new players coming into the market.
The more the funding industry grows, the more solicitors need to be aware of it – and consider whether this expanding pool of capital available to support legal claims is something that their clients might benefit from.
Rachel Rothwell is editor of Litigation Funding
Follow Rachel on Twitter: @LawJourno